Professional Skepticism Traits and Fraud Brainstorming Quality

Abstract

Auditing standards emphasize that fraud detection is an important objective of an audit and require the exercise of professional skepticism (PS) and a discussion among the engagement team to prevent and detect fraud. The purpose of this study is to examine whether professional skepticism is a driver of fraud brainstorming quality. We investigate the relationship between fraud brainstorming quality, using the measure of Brazel et al. (2010), and auditor’s professional skepticism traits. Using proprietary data from Dutch audit firms on 125 engagements, we find that neutral trait skepticism and professional moral courage of the partner have a significant effect on fraud brainstorming quality. We observe a higher attendance rate and contribution of specialists, more extensive discussion, longer preparation, and longer sessions for engagements led by partners with high neutral trait skepticism and high moral courage. We find no significant results for partners with a high presumptive doubt trait. Additional cross-sectional analyses show that the effect of professional skepticism on FBQ depends on situational, organizational conditions.

Keywords: Professional Skepticism, Fraud Brainstorming, Fraud Risk Assessment, Fraud, Brainstorming

JEL Classification: M42; J24